News
California insurance market rattled by withdrawal of major companies
Unsettled market aligns with trends across the country
Two insurance industry giants have pulled back from California's home insurance marketplace, saying that increasing wildfire risk and soaring construction costs have prompted them to stop writing new policies in the nation's most populous state.
State Farm announced last week it would stop accepting applications for all business and personal lines of property and casualty insurance, citing inflation, a challenging reinsurance market and “rapidly growing catastrophe exposure.” The decision did not impact personal auto insurance.
“We take seriously our responsibility to manage risk,” State Farm said. “It's necessary to take these actions now to improve the company's financial strength.”
Allstate, another insurance powerhouse, announced in November it would pause new homeowners, condo and commercial insurance policies in California to protect current customers.
“The cost to insure new home customers in California is far higher than the price they would pay for policies due to wildfires, higher costs for repairing homes and higher reinsurance premiums,” Allstate said in a statement.
Heavy lies the crown: Why California’s largest home insurer hit pause
“This is temporary,” is the message from the California Department of Insurance (CDI) as it attempted to assuage policyholder fears following news that State Farm, the largest home insurer in California (and the U.S.), would stop accepting new home insurance applications in the state.
State Farm, which has 20% of the California home insurance market, reported its decision to stop seeking new business in California was driven by growing construction costs, increasing catastrophe exposure and a difficult reinsurance market.
“As observers that aren’t in the state, you kind of wonder how they do it,” says Bill Martin, president and CEO of Plymouth Rock Home Assurance. “We know that the cost of reinsurance is higher and the wildfire costs have been ruinous.”
In a consumer alert, CDI reinforced that State Farm’s decision only affects potential new customers, as the insurer is not taking non-renewal actions at this time. The company also continues to write personal auto policies in California. State Farm was the largest writer of personal auto policies in the U.S., according to 2022 market share data from the National Association of Insurance Commissioners.
Martin explains that insurance carriers address these challenging market conditions by either buying a lot of reinsurance, which has grown in cost, or reserving capital for that specific area or risk.
“State Farm, because of their size, is probably more in the latter,” Martin says. As such, the question becomes “Is the surplus assigned to the state growing faster than market share in the region?”
“I’m sure they (State Farm) realized that they aren’t. Their home insurance customers don’t leave them very often, so the renewal book they have is one of the biggest under any regulator in any state in one company,” Martin says. “So, they’ll do just fine to serve their current customers, and it is probably smart for them to say, ‘let’s not take on any new customer until we have more certainty.’”
To this end, Martin says State Farm is likely looking for rates in California to stabilize, instead of always having to play catch up.
Dartmouth study says climate change is driving increasing extreme precipitation
Climate change is driving an increase in extreme precipitation across the Northeast, according to a new study from Dartmouth.
The research shows events that bring 1.5 inches or more of heavy rainfall or melted snowfall in one day are expected to increase 52% by the end of the century.
Jonathan Winter, a Dartmouth professor and a senior author on the study, said climate change can influence rain in a variety of ways. But the key idea, he said, is that a warmer atmosphere can hold more water vapor.
“When you have a warmer atmosphere under a warmer climate, when you get the conditions that are right for precipitation, because you have more of it in the atmosphere, it becomes these heavier rainfall events and is then classified as extreme precipitation,” he said.
Winter says the increase in extreme precipitation is expected to happen mostly in the wintertime and the spring, with wintertime precipitation expected to more than double. As the climate warms, more snow is expected to fall instead as rain.
Researchers are expecting a large increase in the number of days with extreme rain or snow, and a smaller increase in the amount of precipitation during each event.
The study comes after Winter and his colleagues’ previous research showed that there has already been about a 50% increase in extreme precipitation from 1996 to 2014, also linked to climate change.
To examine future precipitation, the researchers used a climate model to simulate rain and snowfall between 1976 and 2005, and to simulate what’s expected between 2070 and 2099. They compared the results to a set of 16 other models, which showed largely consistent results.
“If anything, we're a little bit on the conservative end,” Winter said.
10 states sue to try to block large flood insurance rate hikes
Louisiana and nine other states filed a lawsuit against the federal government Thursday to block sharp increases in national flood insurance rates that are slated to be phased in over the coming years, saying the steeper price could cost some people their homes and businesses.
Dozens of local Louisiana governments and flood control districts also are plaintiffs in the lawsuit, which was filed in U.S. District Court in New Orleans. The Department of Homeland Security and the Federal Emergency Management Agency are among the defendants.
Louisiana Attorney General Jeff Landry joined several local officials and business leaders at a news conference announcing the suit on Thursday.
FEMA has said its new premium system is an improvement over past methods, incorporating data that wasn't used in the past, including scientific models and costs involved in rebuilding a home. The agency has said the old method could result in people with lower-valued homes paying more than a fair share while those with higher-value homes pay relatively less.
However, Louisiana officials have been complaining for months about the coming rate hikes, saying they could impose impossible financial burdens on some in the state.
Insurance Jobs Grow by 7,200 as Hiring Nationwide Remains Strong
Insurance companies and related businesses added 7,200 jobs in May, building on a nationwide employment surge that has continued for months.
While the May numbers do not reach the levels of April — when companies added an estimated 15,000 insurance jobs — they still brought overall insurance employment to more than 2.9 million, according to preliminary figures released by the U.S. Bureau of Labor Statistics (BestWire, May 5, 2023).
The preliminary data show insurance hiring increased by 33,700 jobs compared with May 2022, BLS said.
InsurTech/M&A/Finance💰/Collaboration
Insurtech Startups Are Doing It Again!
The recent $4.5 billion valuation of Wefox makes no sense. It shows that investors haven't yet learned the lessons of Lemonade, Hippo and Root.
This month, Wefox did a new round of financing at a $4.5 billion valuation. This valuation makes no sense!
At current market prices, you can buy pretty interesting insurance targets with this amount. Moreover, I doubt any investor would accept exchanging stocks in an equity-only merger with Wefox.
Matteo Carbone is founder and director of the Connected Insurance Observatory
Tower Hill Completes $2 Billion Florida Reinsurance Program
Tower Hill Insurance Exchange said it completed a nearly $2 billion Florida reinsurance program ahead of June 1 renewals.
The exchange secured nearly $2 billion in catastrophe reinsurance that will protect it in excess of rating agency requirements, including all perils, it said in a statement. Cover includes $120 million more of limit than the expiring program. The exchange said its partnered with nearly 40 reinsurers.
Tower Hill Prime Insurance Co. also secured an additional $111 million of cover for protection in excess of rating agency requirements. The company said about two dozen reinsurers are partners in its Tower Hill Prime program for the coming season. Tower Hill Prime provides insurance for commercial risks in the Southeast, including Florida, and residential risks in 16 states outside of Florida.
Tower Hill has more than 300,000 members in Florida, it said
The exchange secured nearly $2 billion in catastrophe reinsurance that will protect it in excess of rating agency requirements, including all perils, it said in a statement. Cover includes $120 million more of limit than the expiring program. The exchange said its partnered with nearly 40 reinsurers.
Tower Hill Prime Insurance Co. also secured an additional $111 million of cover for protection in excess of rating agency requirements. The company said about two dozen reinsurers are partners in its Tower Hill Prime program for the coming season. Tower Hill Prime provides insurance for commercial risks in the Southeast, including Florida, and residential risks in 16 states outside of Florida.
Tower Hill has more than 300,000 members in Florida, it said
Ondo InsurTech Says LeakBot Trial Shows Leaks Fell 60%
Ondo InsurTech said Tuesday that data from the Portsmouth Water trial showed the number of leaks at houses fitted with its LeakBot device fell 60% after six months, and following the trial, the utility provider is considering a wider rollout to reduce in-home consumption.
The London-listed insurtech company--which was formerly called Spinnaker Acquisitions--said data suggested that leakage at an average house in the U.K. equated to waste of around 40 liters a day.
Based on pilot results, 100 million pounds ($124.4 million) could be enough to install the LeakBot system in more than three million homes and achieve water savings of up to 100 megaliters a day - enough water to fill "38 Olympic size swimming pools every day and help the U.K. to meet its stretching water efficiency goals in the coming years," the company said.
"We look forward to progressing conversations with Portsmouth Water about next steps and presenting the full findings to other U.K. water companies today," Chief Executive Craig Foster said.
LeakBot alerts customers to leaks via an app. It is clipped to a customer's mains pipe and the app tracks air and water temperatures, alerting the user of potential leaks
AI in Insurance
The Hartford centers agility, startup mentality
Deepa Soni, the executive vice president and CIO at The Hartford, describes the company as a 213-year-old startup. Soni gave the keynote address at the DIGIN conference on June 5 in San Francisco.
"Generative AI is a great example of technology that's going to have an exponential impact on communities, societies and companies," Soni said. "There are many more examples like blockchain and the metaverse. I think these are some of the technologies that have huge potential to create a future that's going to be very different from the past."
The Hartford, which developed an enterprise agility business model, is focused on customer experience.
"We strongly believe that data and AI will create a separation of digital haves and have-nots," Soni said. "We have a very aggressive technology and data agenda over the next few years, which is all embedded in business habits at the end of the day. For companies like us at The Hartford, technology is driving business outcomes."
As part of that aggressive agenda, The Hartford will look to bring products to the market the fastest, Soni said. "That requires not just modern technology. But it also requires different ways of thinking, different mindsets, and different operating models to be able to bring capabilities to the end consumer faster."
The company now operates within 35 customer-centric value streams. A move that had the company's HR department leading the development and refinement of roles and responsibilities as well as job descriptions to better align with the new business processes.
"To be a digital leader, we have to be strategists, great executors, collaborating across the company with speed," Soni added. "We have to transform, modernize and innovate. All at the same time, while developing a great talent ecosystem, it is a multi-dimensional play."
Soni joined The Hartford in September 2019. She previously worked for about 25 years in technology and business within the banking industry. She was educated in engineering and spent the first part of her career in software development. In July 2021, her role was expanded to lead technology across the company when Bill Bloom, head of claims, operations, technology, data and analytics retired.
She says: "We've been working on simplifying and modernizing technology. That is the future for us in a lot of ways, as I think about our ability to broaden the spectrum of what we can offer our customers. … We have been taking a very contentious effort to modernize our technology, to move our applications and data assets to the cloud and leverage the power of the cloud."
Navigating the AI Frontier: An Imperative for P&C Insurers in Uncharted Territory
“In the midst of chaos, there is also opportunity.”— Sun Tzu
We are living in an epoch of profound transformation and paradox, reminiscent of Charles Dickens’ “It was the best of times, it was the worst of times.” This dichotomy deeply resonates in the insurance sector as we stand on the brink of a brave new world, one shaped by the transformative potential of Artificial Intelligence (AI) and Large Language Models (LLMs).
In this era of digital disruption, the danger of inertia for property/casualty insurers is real and imminent. The urgency for businesses to innovate and reinvent is palpable. The challenge is not about whether to act, but how best to navigate the uncharted territory of AI and LLMs, such as ChatGPT. This piece endeavors to articulate the “What to Do” segment of Celent’s flagship report ChatGPT and Other Large Language Models: P&C Insurance Edition setting forth a pragmatic roadmap for C-suite executives and operational leaders
These innovative technologies are rapidly reshaping the insurance landscape, presenting an era of unprecedented opportunity. They promise to redefine various aspects of the insurance ecosystem, spanning from underwriting to product development, claims management, marketing, actuarial tasks, analytics, and beyond.
These innovative technologies are rapidly reshaping the insurance landscape, presenting an era of unprecedented opportunity. They promise to redefine various aspects of the insurance ecosystem, spanning from underwriting to product development, claims management, marketing, actuarial tasks, analytics, and beyond.
Navigating the Pace of Change
The accelerated adoption of AI-driven technologies in the insurance industry highlights a profound shift. Echoing Jack Welch’s famous quote: “If the rate of change on the outside exceeds the rate of change on the inside, the end is near.
” One example of this rapid change is ChatGPT, an AI-based application developed by OpenAI. According to UBS, ChatGPT is the fastest growing app of all time, reaching over 100 million users in just two months, compared to TikTok which took nine months, and Instagram which took 2.5 years to achieve the same user base. This illustrates the rapid pace of AI adoption and the urgent need for insurance companies to adapt quickly and innovate"
Andrew Schwarz is an Analyst on Celent’s North American Property & Casualty team
"From retrospective to prospective" – CEO on AI's role in the shifting risk management industry
There are few things more divisive in the world today than the discussion surrounding the continued proliferation of generative artificial intelligence (AI). Spurred on by the popularity of generative AI platforms like ChatGPT and DALL-E, and its seemingly untenable position as a superior entity when it comes to activities such as art and – unfortunately for this writer – writing, the arguments for AI have been more pronounced and nuanced as it has begun to seep into more major industries.
While those more outspoken in the news or on social media view it as something that will eventually supplant the human workforce, some of those entrenched in the technology see it as something that will create better opportunities. In conversation with Insurance Business’ Corporate Risk channel, Cytora CEO and co-founder Richard Hartley said that AI, just like any other technology, will go together with the human element to “break down barriers of entry of different jobs” in various sectors.
“I really view it as similar to me with a mobile phone; I’m more productive with it than I am without it. Human plus AI is going to lead to higher productivity and higher opportunities for those people,” Hartley said. “I’m sure in some very commoditized areas, it will result in some jobs not being as available, but in the vast majority, I think it will just increase productivity and make people more effective and efficient.”
Citing the transportation industry as a close parallel, Hartley said that it used to be a smaller industry, and that it can only be afforded by very wealthy people.
“As that technology became more and more accessible, and the price reduced, more and more people could drive, and it became accessible and available to many people,” Hartley said. “My view on pretty much all technology is that it creates opportunity. Ultimately, whenever you apply a technology to a market, that market gets so much bigger. You think about this in all sorts of ways.”
AI roadmap – How insurance firms can prime themselves for the future
A vast majority (90%) of global business leaders in a wide array of industries have named artificial intelligence as the emerging area of innovation that has most influenced their organization’s long-term strategy, according to Accenture’s latest Technology Vision report.
Nearly two-thirds surveyed also said they anticipate dedicating more resources to AI in the next three to five years.
The results show that Canadian insurance executives understand the important role that AI will play in the future of their work, and that they are willing to make the necessary investments to integrate AI, said Krish Banerjee (pictured), Canada managing director of data, analytics & applied intelligence at Accenture.
Speaking to Insurance Business, Banerjee shared four ways insurance companies can prepare for widespread disruption by AI:
Start with people An organization’s workforce should be in its first line of priorities as it prepares to incorporate new technologies, Banerjee stressed.
“As insurers plan for further adoption of AI, they will need to radically rethink how work gets done. To that end, helping employees keep up with technology-driven change will be the biggest factor in realizing the full potential of AI,” he said.
But companies should put overt emphasis on technical skills.
“Domain experts, who understand how data is applied in the real world, will be just as important as data scientists,” Banerjee added.
Events
Reuters Events: The Future of Insurance USA 2023 | June 27–28 | Marriott Marquis, Chicago
Streamline Processes | Reimagine Products | Empower People
Insurance is at a critical inflection point. Inflation is causing a profitability crunch, customers are demanding digital perfection, and the talent crisis remains unsolved. Have you set your future strategy yet?
Join the industry conversations that matter at Reuters Events: The Future of Insurance USA 2023 (June 27-28, Chicago) to ensure your people, processes, and products are fully optimized in the face of global change. Challenge the perception of insurance with innovative products, thrive in the changing ecosystem with new partnerships, and combine the power of next-gen tech with diverse talent to drive customer-centric transformation.
With just a few weeks until the event, the final seats are being filled by major US carriers (AAA, Allstate, AmFam, Amerisure, Chubb, CNA, FM Global, Humana, Kemper, Nationwide, New York Life, Prudential, State Farm, Travelers, USAA, Zurich & more) – don’t miss your chance to sit among them.
Canada
Knowledge transfer key as senior leaders retire: Demographic report
Demographic patterns show an emerging need for knowledge transfer strategies while finding qualified people to fill vacated leadership and management positions due to retirement, according to a survey of industry HR professionals for the Insurance Institute of Canada’s 2022-23 industry demographics study.
“Eight-and-a-half percent of the workforce is expecting to retire in the next five years, particularly in management positions, senior management and mid-level managers,” Insurance Institute of Canada president and CEO Peter Hohman observed, commenting on the report results in an interview with Canadian Underwriter. “With the propensity of people over the age of 55 to consider early retirement, a lot of institutional knowledge is heading into retirement.
“And so there’s an opportunity…for employers to introduce proper succession planning tools to make sure that knowledge transfer is moved on to that next generation of leaders.”